You Can't Rely on Social Security

Do you know how much the average U.S. senior citizen receives per month from Social Security?  It's around $1,200 per month.  The disturbing truth is that for most retired people, their Social Security checks make up most of their monthly benefits.  That's not a lot of money to live on so millions of older Americans are just barely getting by.  Up to my parents' generation, this is approximately how much they should expect from Uncle Sam.

An even more disturbing truth is what my generation is expected to receive from Social Security.  (Note: My generation is Generation Y, people born in the mid-80s to the late 90s.)  Our predicted benefits will be around $600 per month!  This is the result of our present debt being delayed to burden the future generations.  Obviously, pretty much no one can live off of $600 a month so there needs to be a solution.

In order for people to retire comfortably, they need to purchase annuities.  What exactly is an annuity?  An annuity is a series of future payments from an investor who is asking you for a certain amount of money today.  For example, you give him $100,000 today and for the next 10 years he will pay you $14,237.75 at the end of each year.  Nice deal, right?  This is assuming an interest rate of 7%.

You can also invest in bonds with coupons attached to them.  For example, you give a company $135,117.91 today and you will receive $12,000 at the end of each year for 10 years and $100,000 at the end of the tenth year (in addition to the $12,000 for that year).  This is also assuming an interest yield rate of 7%.

The problem is, many Americans don't have enough savings to invest in.  There are some psychological factors and perhaps one solution may to be to significantly raise taxes so that our Social Security benefits would increase.  Unfortunately, this would probably be political suicide so no politician would actually put that on his or her platform.

My proposal is that we need to radically change our public education curricula at the high school and even middle school level.  We need to teach young Americans basic economics and finance.  They need to know about the different financial instruments out there, including derivatives.  They need to understand how insurance works and why people take these unfair gambles.  (Answer: People are risk averse.)  They need to learn how to save money so that they can make more money on their own to invest in their retirement funds.  They need to be more informed citizens about how the economy functions as a whole, that we're all in this together in this increasingly more global network.

I understand that there's beauty to analyzing Shakespeare and knowing the periodic table of elements can broaden our understanding of how materials work, but I think given the current state of affairs in our country, informing our youth about financial topics is a bigger priority.